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The 4 market segments of SMEs and what they mean for innovation

July 21, 2021

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The 4 market segments of SMEs and what they mean for innovation 

Through a simple methodology, SMEs have been segmented into 4 distinct groups based on their level of innovation and commercialisation.  

The ‘groundbreakers’ are the most innovative SMEs. They consistently invest in R&D and are well aware of the broad range of R&D funding opportunities. They produce strong, patentable IP that they successfully commercialise. They are the most progressive segment, having the most female CEOs and being the biggest users of key enabling technologies. They tend to be growing companies and startups.  

The ‘conservatives’ are mostly micro or small companies. They are more mature companies and take more calculated risks. As such, their innovation is not as strong, limiting their opportunities for patenting but also to access funding. However, they are the most successful at introducing new business models. They are also the most likely to be very dissatisfied with the aid available from the government for R&D. This is probably linked to the fact that there is a mismatch between their R&D activities and the eligible activities for R&D incentives.   

The ‘casuals’ are growing and maturing companies. Although they undertake innovation, they don’t necessarily commercialise it. They are the least likely to be dissatisfied with government support for R&D but most of them did not receive any public financial support. They mostly use banks loans as a finance option and are unsure of what are R&D incentives, finding them complicated and time-consuming.   

The ‘traditionalists’ are mostly micro-companies with a male CEO. They are the lowest investors in R&D. They tend to be ad-hoc innovators. Their innovation is most likely to be an improved version of an existing product or service with low IP. They may lack understanding of what innovation is, and few innovate with business models. They don’t generally use either public or private R&D finance.  

The greatest value would be obtained by supporting the groundbreakers as they are the biggest investors in R&D and the ones to profit the most from their innovation. However, exploring further, the conservative segment may lead to untapped opportunities. The impact may not be as high but if they can be supported appropriately, conservative SMEs could generate a worthwhile impact. There is a mismatch between the expectation of these SMEs and the support available to them. There are two possible challenges with this segment - their innovation consists of lower-level innovation which is not always patentable, meaning that it can be copied more easily. Similarly, with new business models, although these can create a competitive advantage, it is not protectable through patents and there is a greater risk that it can be copied.   

The conservatives are the neglected SMEs because their innovation is not sufficiently strong to be patentable and ground-breaking. Further research would be needed to understand the right level of investment needed for these organisations to help them maximise the return, particularly looking into how business model innovation could be better supported.   

The ‘casuals’ and the 'traditionalists’ are the lower innovation segments - they are the ‘long tail’ of innovative SMEs. Targeting these segments is unlikely to lead to high returns. However, they may benefit from lower intensity incentives designed for them. For example, they may benefit from education into innovation and innovation does not necessarily translate into new products or services but could be a new business model. 


July 21, 2021
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